Livestock Analysis (VIP) -- March 11, 2014

March 11, 2014 09:37 AM


Price action: Lean hog futures closed 60 cents to $1.47 1/2 higher through the August contract. Far-deferred futures closed lower amid profit-taking.

Fundamental outlook: Concerns with production losses tied to porcine epidemic diarrhea virus (PEDV) continue to support summer-month lean hog futures. Hog/pork production declines seasonally through spring and summer anyway, but PEDV will further cut supplies this year, though it's uncertain by how much. Traders are very likely factoring in too much production losses, but the path of least resistance is up and there aren't many willing sellers.

Cash hog bids continue to strengthen. With the surge in the pork cutout value keeping packer margins solidly in the black, there's incentive for packers to compete for market-ready supplies.

Technical outlook: April lean hog futures remain heavily overbought, but traders are showing no urgency to correct that situation. Until the contract posts an indication upside momentum has stalled, traders will be reluctant sellers despite what momentum indicators signal.

Hedgers: Carry all risk in the cash market for now.

Feed needs: Profits on the 1st-qtr. meal hedges have been claimed. Carry all corn-for-feed and meal risk in the cash market for now.


Live cattle

Price action: Live cattle futures saw a mixed day of trade, but bears had the advantage at the close. April live cattle ended 7 1/2 cents higher while deferred months ended 15 to 55 cents lower.

Fundamental outlook: Ideas the cash cattle market may have put in a top overshadowed ongoing gains in the boxed beef market and tighter showlist estimates that would normally signals higher trade. This was the case last week as well. While the front-month ended higher as traders are not willing to extend the $5 discount it holds to the lower end of last week's cash trade, traders have also showed little interest in actively narrowing the gap.

Reaction to news of a free trade deal between Canada and South Korea that will eventually lift Canada's share in the Asian meat market was limited as this will take place over a period of 15 years and implementation will not be immediate.

Technical outlook: April live cattle gapped above the $143.50 resistance area that has capped gains since Thursday, but the market promptly softened and ended within the market's short-term trading range. Support stands at today's low of $142.70, with tougher support standing at the bottom of the Feb. 26 gap at $142.60.


Feeder cattle

Price action: March feeder cattle futures gapped higher on the open but later softened to fill the gap. The contract posted gains of 22 1/2 cents for the day. Deferred months gapped lower on the open, filled the gap, but still ended 12 1/2 to 30 cents lower.

Fundamental outlook: Feeder cattle futures surged on the open as the trend of the market still clearly favors market bulls. But as corn strengthened and live cattle pulled back, some profit-taking returned to feeder cattle futures. But with supplies still historically tight, any pullbacks will be limited.

Technical outlook: April live cattle gapped sharply higher on the open, but the contract was unable to sustain buying above $176, marking this level as resistance. However, the contract also found support at $175.

Hedgers: Fed cattle producers are long April $136.00 put options at $1.325 covering 1st-qtr. and 50% of 2nd-qtr. marketings. The April $144.00 call options that we sold for $1.525 were exercised into a short futures position, meaning we are effectively hedged at $144.20 (the strike price plus the 20 cents we made on the initial sale of these calls compared to what we spent on the puts).

Feed needs: Carry all corn-for-feed and meal risk in the cash market for now, but be prepared to extend coverage on a price break.

Back to news


Spell Check

No comments have been posted to this News Article

Corn College TV Education Series


Get nearly 8 hours of educational video with Farm Journal's top agronomists. Produced in the field and neatly organized by topic, from spring prep to post-harvest. Order now!


Market Data provided by
Brought to you by Beyer